The monthly non-farm payroll report from the U.S. Department of Labor can have a substantial impact on forex markets when the numbers are released on the first Friday morning of a new month.
Traders are always monitoring indicators to identify trends in economic growth and some of the most-watched economic indicators include inflation, housing starts, gross domestic product, and the monthly payroll report. This contains a variety of data and statistics regarding the employment situation in the United States.
Key Takeaways
- The monthly jobs report from the U.S. Department of Labor can have a notable impact on the forex market because traders are always monitoring economic data for signs of strength or weakness.
- The numbers are released on the first Friday of the new month and capture employment trends from the month before.
- The headline payroll number is considered to be the most important but traders also look at other data in the report such as the unemployment rate, changes in wages, and any revisions to past reports.
- The forex market will likely see a notable reaction when the payroll report deviates substantially from economists' expectations.
Understanding Non-Farm Payrolls
The U.S. Department of Labor's Bureau of Labor Statistics releases the monthly jobs report on the first Friday of a new month with some exceptions due to holidays. The report covers the relevant employment statistics from the previous month. Numbers that are released on the first Friday in February include data for January. The report contains key information on unemployment, job growth, and payrolls.
Non-Farm Payroll Data
The non-farm payroll data included in the jobs report typically has the most market impact. The number is often included in news headlines and represents the total monthly increase or decrease in paid U.S. workers of any business excluding general government employees, private household employees, sole proprietors, employees of nonprofit organizations that assist individuals, unpaid volunteers, and farm employees.
Non-farm payroll data is analyzed closely because of its importance in identifying trends related to the rate of economic growth and inflation. The increase is an indication that the economy is growing when non-farm payrolls are expanding but this may lead to an increase in inflation. That may be viewed as a negative for the economy if increases in non-farm payroll occur at a fast rate.
Data on wage growth and the rate of unemployment are also included in the monthly jobs report and help shape inflation expectations and estimates for future economic growth.
Expectations vs. Reality
As with many other economic indicators, the difference between the actual non-farm data and the figures expected by economists will often determine the overall market impact. The forex market will likely react to the new reality by adjusting prices and exchange rates if there are any major surprises or disappointments that deviate from expectations.
Forex traders might be motivated to sell U.S. dollars in anticipation of a weakening currency amid concerns that economic growth is not as robust as previously thought if non-farm payroll growth is lower than economists' estimates.
The opposite is true when the data is stronger than economists' expectations. A strong report can sometimes motivate traders to buy U.S. dollars on expectations that economic growth in the United States is improving.
Why Are Farm Employees Excluded From the Jobs Report?
Farming is a seasonal occupation. Jobs and pay in this sector can vary significantly by location and time of year. Data collected in one week or one area of the country will most likely differ from overall national or yearly data. The U.S. Department of Agriculture takes on the task of monitoring and collecting data on farm labor.
What Is Gross Domestic Product?
Gross domestic product (GDP) is a measurement of the value of goods and services produced by the U.S. economy during a specified period. It doesn't include the values of any goods and services that are depleted by the process of production. GDP is one of the most critical components of the overall financial market.
How Does the Forex Market Work?
Forex stands for "foreign currency exchange." The forex market involves buying and selling worldwide currencies based on whether an investor believes that the value of one currency will rise or fall in comparison to another.
The Bottom Line
The monthly jobs report from the U.S. Department of Labor guides traders who are on the lookout for signs of strengths or weakness involving the U.S. dollar. It includes information on the unemployment rate and any trends in wages. The forex market then reacts by adjusting prices and exchange rates if there are any major variations. Interpreting them is a learned art best performed by professionals.
FAQs
The U.S. dollar often rises when the NFP is stronger than expected, as it indicates a stronger labor market. The U.S. may also increase interest rates, which leads to more forex traders buying the dollar and the dollar price appreciating in the forex market.
How does non farm payroll affect the forex market? ›
NFP releases have a general tendency to cause large movements in the forex market. If the Fed decides to lower interest rates to combat high unemployment, it reduces demand for the dollar, causing it's the dollar's price to fall.
What happens when non farm payroll increases? ›
A higher-than-expected NFP figure can indicate a resilient economy and higher consumer demand. As a result, companies perform better; earnings are higher, as is investor confidence. This can cause the stock market to rise.
Why is NFP important in forex? ›
Nonfarm payrolls (NFPs) are an important economic indicator of employment in the U.S. Data released on NFPs can catalyze trade in foreign exchange trades based on changes in employment. Technical analysis can be employed in the NFP report using five or 15-minute chart intervals.
How does NFP affect gold forex? ›
When the NFP report shows positive employment data, indicating a strong job market and economic growth, it tends to boost investor confidence and risk appetite. In such cases, investors may shift their focus towards riskier assets, such as stocks, which can reduce the demand for assets like gold.
Does NFP affect US30? ›
The most noticeable effect when the NFP is released is on the Forex trading market. Any currency pair that includes the US Dollar could be affected, such as the following. These pairs tend to have increased volatility and widening spreads following this report being made public.
Does NFP affect JPY? ›
Another example is the Nonfarm Payroll (NFP) report. If the report shows weakness, the Yen could gain against the Dollar, pushing the Pound to Yen exchange rate lower.
How to predict NFP? ›
Usually, this is done using the average of a group of professional analysts – if NFP significantly 'beats' or 'misses' this consensus, a major market move may follow. If it falls roughly in line with expectations, volatility may remain low.
How to read NFP news? ›
How to Read the NFP? The NFP measures the number of jobs created or lost in the U.S. economy over the prior month. For example, -1000K means 100,000 jobs were lost in all non-agricultural businesses. To get a feel for the employment situation, it's good to review the history of previous NFP releases.
Is non-farm payroll a leading indicator? ›
Is Nonfarm Payrolls a Leading or Lagging Indicator? The nonfarm payroll report is not a leading indicator but provides a snapshot of incidents that affect the overall economy.
The most important advice for trading the NFP: You never trade the actual NFP numbers. You trade people's expectations and reactions to those numbers. The screenshot below shows a very common behavior and it highlights the importance of waiting out the first initial knee-jerk reaction.
What is the best currency to trade during NFP? ›
Top Currency Pairs for NFP Trading
- EUR/USD. EUR/USD is the most traded currency pair in the forex market, making it one of the best pairs to trade during NFP. ...
- GBP/USD. GBP/USD is another major currency pair that reacts strongly to NFP data. ...
- AUD/USD. ...
- USD/JPY. ...
- USD/CAD. ...
- USD/CHF.
A 30-pip stop is generally recommended and a maximum of two trades can be undertaken in this way. Most of the movement will occur in the four hours after the release of the NFP reports, so you'll want to exit in this timeframe or use a trailing stop.
How does gold react to non-farm payroll? ›
Usually, good news for the U.S. labor market (or, actually, better than expected) is positive for the greenback and negative for the shiny metal. The price of gold tends to fall on the day when the Nonfarm Payroll Report comes out.
Is NFP a leading or lagging indicator? ›
Just like other labor market reports, the NFP is usually considered a lagging indicator as it represents historical changes in employment levels.
Does NFP affect volatility index? ›
The effect of the NFP release can also extend to other currency pairs in terms of increased volatility, but the main impact is seen in those pairs where the USD is present.
How does non-farm payroll affect the stock market? ›
How Does NFP Data Affect Stock Markets. The monthly nonfarm payroll (NFP) report can have a significant impact on the stock market. Strong jobs report: Can lead to higher stock prices because investors feel confident about the economy. Companies may also have more revenue to invest in growth.
Which currency is affected by NFP? ›
The NFP Forex Trading Strategy
Since the NFP report affects all major currency pairs that include the US dollar, one can place entry or exit orders after the statistics and numbers in the report are released.
What is NFP in forex factory? ›
From forex.com. Non-farm payrolls (NFP) are monthly measurements of how many workers there are in the US, excluding farm workers and a few other job types such as government workers, private households and non-profit employees.
